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ESC C16 before 1st March

I have a client company who has in excess of £25k to distribute on closing their company, which has ceased trading.

Having not applied for C16 before, and now being constrained by the 1st March 2012 deadline (when the distribution cap of £25,000 comes into play) I want to ensure I'm not missing anything.

Am I right in thinking that as long as the reserves in the company are distributed before the 1st March, and as long as we apply for C16 clearance before then, we will be ok? Do we need to know how much the distribution will be?

The CT won't be paid before 1st March (unless we can get the accounts done by then) but will be paid shortly afterwards.

Thanks.

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By Exector
08th Feb 2012 16:24

This link may help

http://www.ion.icaew.com/TaxFaculty/23935

 

but clear no one really knows for sure, particularly if not all of any available funds are distributed out before 1 March!!

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By Monsoon
08th Feb 2012 16:23

Thanks

Also had this come into my email box which is also very helpful

http://www.rossmartin.co.uk/index.php/sme-tax-news/35-sme-tax-news/832-e...

 

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08th Feb 2012 16:45

do we need to apply for esc c16 at all?

Do we even need to apply to HMRC for esc c16 clearance at all?   In 

As I understood it, with esc c16 you wrote to HMRC asking for clearance relating to any (not just future) distributions made by a company in anticipation of a winding up, and I am sure that I have seen occasions where there may have been distributions that predated the application to HMRC.

My question is, what could happen if you make the distributions now (pre 1/3/12) on the assumption that they are under esc c16 and therefore capital, without ever applying to HMRC for esc c16 clearance?

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Colin

Are you suggesting that they're now legislating for something that was neve necessary in the first place.

We're getting something that nobody wants, nobody likes and nobody ever needed.  That's all the current government have done since they took office!

The answer is if you distribute money from a company and it exceeds the amount subscribed for the shares, then that is an income distribution.  If you apply for ESC C16, HMRC will let you treat it as capital for tax purposes. If you don't they won't.

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09th Feb 2012 17:17

what is an income distribution?

A poster on another thread on this subject was adament that any distribution in the course of an ESC C16/DS01 winding up was covered by these income distribution rules, not just amounts that exceed share capital subscribed.  i.e. a return of share capital as part of such a winding up is also a distribution that could be an income distribution (if it exceeds 25k in the new rules).  I don't agree.  What's your view on this George?

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I don't recall the comment...

... but then again, I've got rather bored with the topic.

The effect of the legislation is to not treat distributions as income distributions (to the extent that they are income distributions) if they are within the limit, and a distribution is not an income distribution if it is merely the return of share capital, it's true.

However, take a company with £1,000 share capital.  If it distributes £26,000 (£1,000 share capital, plus £25,000), it breaches the limit and the £25,000 (excess over share capital) is taxable as income, by my reading.  So the income distribution limit of £25,000 is effectively restricted by the amount of share capital a company has.  A share capital reduction exercise in anticipation of dissolution wouldn't seem to work either.

Also, if a C16 application is made now, and the funds aren't distributed in full before 1 March, then the amounts distributed before 1 March count towards the £25K limit, for determining whether or not the post 29 February distributions are taxable as income. IMHO

Additionally, the legislation refers to distributions in anticipation of dissolution. How far back does the anticipatory period extend?  HMRC can go back, see a dividend and decide that that was also in anticipation of dissolution.

The legislation is full of question, but as I've said previously, it's still better than C16 simply being shelved.  It is at least there and capable of being changed.

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